Gov’t eyes tighter debt spreads

THE GOVERNMENT is planning to price its foreign bond issuances this year at “even tighter” spreads amid expectations of a credit rating upgrade in the medium term and policy easing from global central banks.

Finance Secretary Carlos G. Dominguez III said that last year, the country was able to secure tight spreads for as low as 32 basis points (bps) over benchmark relative to other countries and the state will likely continue on this trend if “favorable market conditions” permit.

“He (Mr. Dominguez) said that subject to favorable market conditions, the government intends in 2020 to price its foreign bond issuances even tighter given the credit rating upgrade, the prevailing negative benchmark yields and the expected easing from central banks as a counterweight to the weakening global economy,” the Department of Finance (DoF) said in a statement Thursday.

The country was also able to keep its first renminbi-denominated Panda bond float in 2018 in tight spreads as well as its return to the Samurai bond market that year.

The government’s 10-year global bond issue in January last year worth $1.5 billion was priced at 3.75%, 110 bps higher than the benchmark US Treasury and tighter than an initial 130 bps guidance, the DoF said.

It added that the country’s return to the European market after more than a 10-year break in May last year saw its eight-year global bond float worth €750 million ($839.4 million) to be priced at 70 bps above benchmark, “the lowest-ever EUR yield for a sovereign issuer outside the European Economic Area.”

Meanwhile, the second time the country issued three-year Panda bonds — also last May —worth 1.46 billion renminbi ($203.35 million) was priced at 32 bps, while the multi-tranche Samurai bond issuance last August worth ¥92 billion ($857.2 million) had an average spread of 37 bps.

“The tight spreads of these latest offshore bond issuances underlined investor confidence in the way the Duterte administration has soundly managed the country’s fiscal program,” Finance Assistant Secretary Antonio Lambino II was quoted as saying.

The government is eyeing to secure an “A” long-term credit rating from its current “BBB+” by 2022 while looking to graduate to the upper-middle income status this year, where the Philippines will lose the concessional loans it currently enjoys.

Mr. Dominguez said expectations of higher rates in the medium term will be offset by a credit rating upgrade as this will allow the country to borrow at lower costs and spend its savings on other programs including infrastructure, education and health.

For the private sector, a higher sovereign credit rating will also give firms access to lower borrowing rates to fund their business expansions, while Filipinos may also start availing loans from banks with lower interest rates.

“All of these will translate into larger investments and more jobs for Filipino workers. So, as you see, it is not just about getting upgrades or affirmations. It is also about upgrading the ordinary Filipino’s life,” Mr. Dominguez was quoted as saying.

An “A” credit rating roadmap is currently being drafted by the DoF, Bureau of the Treasury, National Economic and Development Authority and the Bangko Sentral ng Pilipinas.

Mr. Dominguez said the passage of the remaining packages under the comprehensive tax reform program and other economic reforms including the amendments to the Public Services Act, Retail Trade Act and the Foreign Investments Act, will help with the credit rating upgrade.

Also, he said the government will keep its debt low relative to the economy and cap it at 42% of gross domestic product.

“The upgrade is a recognition of our sound policies on liability management. We have kept our debt in check — even as we invest more in infrastructure and social services. We are committed to fiscal discipline, and this makes the Philippines a truly creditworthy sovereign in the eyes of the international financial community,” National Treasurer Rosalia V. de Leon was quoted in the statement.

For the first quarter, the government has set a P420-billion local borrowing program via a mix of short- and long-term securities.

For offshore borrowings, Ms. De Leon earlier said they will likely tap the US, European, Japanese and the Chinese markets anew this year. — B.M. Laforga